When starting a business, you must decide which legal structure (business entity) to establish. Your form of business determines your personal liability regarding investments into your business, the amount of paperwork you have to file, and the taxes you have to pay.
View the comparison business Legal Structure table below. For more in depth details of each legal structure including entity features, filing guidelines, and estimated tax and withholding requirements, visit the California Franchise Tax Board.
| Legal Structure | Sole Proprietorship |
|---|---|
| Who Owns? | "One" Individual (Note: A husband and wife can be classified as a sole proprietorship) |
| Who Makes Management Decisions? | Sole Proprietor has full control of management and operations |
| Entity Formation Requirement | California Secretary of State NO state filing requirement |
| Liability of Business Debts | Sole Proprietor personally liable |
| Duration of Entity Existence (if owner departs) | Dissolved if entity ceases doing business or upon death of sole proprietor |
| Taxation | Not a taxable entity, sole proprietor pays all taxes |
| Franchise Tax | None |
| FTB Tax Forms |
540 |
| Due Dates |
April 15 |
| Legal Structure | General Partnership |
|---|---|
| Who Owns? | General Partners; agreement between two or more parties (Note: A business conducted by registered domestic partners must be classified as a partnership) |
| Who Makes Management Decisions? | Each partner, unless otherwise arranged |
| Entity Formation Requirement | California Secretary of State filing is optional |
| Liability of Business Debts | Partners have unlimited liability |
| Duration of Entity Existence (if owner departs) | Dissolved automatically unless otherwise stated in partnership agreement |
| Taxation | Each partner pays tax on share of income and can deduct losses against other sources of income |
| Franchise Tax | None |
| FTB Tax Forms |
565 |
| Due Dates |
15th Day of the 4th Month |
| Legal Structure | Limited Partnership |
|---|---|
| Who Owns? | General and Limited Partners |
| Who Makes Management Decisions? | General Partner(s) only (not limited partners, unless they serve on the board) |
| Entity Formation Requirement | California Secretary of State filing required |
| Liability of Business Debts | Each general partner has unlimited liability |
| Duration of Entity Existence (if owner departs) | Dissolved automatically unless otherwise stated in partnership agreement |
| Taxation | Files taxes as separate entity, must meet certain criteria to avoid being taxed as a corporation |
| Franchise Tax | Annual Tax $800 |
| FTB Tax Forms |
565 |
| Due Dates |
15th Day of the 4th Month |
| Legal Structure | Limited Liability Partnership |
|---|---|
| Who Owns? | In California the use of LLP is limited to specific professional practice types (ie: architects, engineers, land surveyors, lawyers & accountants)s |
| Who Makes Management Decisions? | All partners have the right to manage business directly |
| Entity Formation Requirement | California Secretary of State filing required |
| Liability of Business Debts | Partners are not responsible for the debts of LLP |
| Duration of Entity Existence (if owner departs) | Dependent on requirements imposed by state of formation |
| Taxation | Files taxes as a separate entity, must meet certain criteria to avoid being taxed as a corporation |
| Franchise Tax | Annual Tax $800 |
| FTB Tax Forms |
565 |
| Due Dates |
15th Day of the 4th Month |
| Legal Structure | C Corporation |
|---|---|
| Who Owns? | Shareholders |
| Who Makes Management Decisions? | Managed by board of directors elected by shareholders |
| Entity Formation Requirement | California Secretary of State filing required |
| Liability of Business Debts | No personal liability of shareholders |
| Duration of Entity Existence (if owner departs) | No effect, unless corporation is solely owned |
| Taxation | Taxed at the entity level, taxed at corporate rates and individual tax rates of shareholders |
| Franchise Tax | Minimum Franchise Tax $800 |
| FTB Tax Forms |
100 |
| Due Dates |
15th Day of the 3rd Month |
| Legal Structure | S Corporation |
|---|---|
| Who Owns? | Shareholders |
| Who Makes Management Decisions? | Managed by board of directors elected by shareholders |
| Entity Formation Requirement | California Secretary of State filing required |
| Liability of Business Debts | No personal liability of shareholders |
| Duration of Entity Existence (if owner departs) | No effect, unless corporation is solely owned |
| Taxation | Income/loss passed through to shareholders |
| Franchise Tax | Minimum Franchise Tax $800 |
| FTB Tax Forms |
100S |
| Due Dates |
15th Day of the 3rd Month |
| Legal Structure | Limited Liability Company |
|---|---|
| Who Owns? | Members |
| Who Makes Management Decisions? | Ordinarily members; or managers if manager - managed LLC |
| Entity Formation Requirement | California Secretary of State filing required |
| Liability of Business Debts | Liability of Members; limited to their financial investments |
| Duration of Entity Existence (if owner departs) | Dependent on the requirements imposed by the State of formation |
| Taxation | Can be taxed as a corporation Income/loss is passed through members |
| Franchise Tax | Minimum Tax $800 |
| FTB Tax Forms |
568 (Single Member/Partnership) 100 (Corporation) 100S (S Corporation) |
| Due Dates |
15th Day of the 4th Month |
3550 Watt Ave., Suite 140 Sacramento, California 95821
1100 Melody Lane, Suite 1038, Roseville CA 95678
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